The Westpac Banking Corp (ASX: WBC) share price is in focus today after the ASX bank share announced its FY24 first-half result.
FY24 first-half result
Here are some of the highlights from the result for the six months to 31 March 2024:
- Underlying net profit after tax (NPAT) dropped 8% year on year to $3.51 billion
- Statutory NPAT declined 16% year on year to $3.34 billion
- Net interest margin (NIM) worsened by 7 basis points (0.07%) to 1.89%
- Interim dividend declared of $0.75 per share, up 7.1%
- Special dividend declared of $0.15 per share
- Share buyback increased by $1 billion
Westpac said it managed growth and margins in a “disciplined way” amid a slowing economic and competitive banking sector. Total loans increased by 1% over the six-month period to $784.8 billion. Total deposits increased by 2% over the six months to $650.9 billion.
Over the 12 months loans increased by 5%, with Australian housing loan growth of 5% (at 1.1x the pace of the overall loan system), and Australian business lending growth was 9%.
The bank said the impact of competition on mortgage margins moderated during this most recent half.
Excluding ‘notable items’, the NIM was unchanged from the second half of 2023 – that’s the profit margin that compares the lending rate to the rate paid to depositors (like savings account). The bigger the NIM, the more it’s making on its lending.
While the underlying NIM may have been unchanged over the half, the actual NIM fell 5 basis points (0.05%) over the six months to 1.89%. The direction of the NIM usually has an important influence on the Westpac share price.
The consumer segment saw a big decline of profit – down 32% to $1.08 billion – though it only dropped 3% compared to the second half of FY23 as the price competition moderated.
Business and wealth net profit rose 7% to $1.14 billion, institutional bank profit fell 3% to $689 million and New Zealand net profit went up 11% to NZ$477 million (due to lower impairment charges).
Arrears
Westpac said more customers are calling for assistance and it’s helping those that need it. It has “seen an uptick in stress” in its loan books, which “is to be expected given the large increase in interest rates, high inflation and taxation.”
Looking at Australian mortgages, the Australian mortgages that are at least 30 days overdue was 1.5% of its loans at September 2023 and 1.8% at March 2024. The loans that were overdue by at least 90 days was 0.9% of total mortgages at September 2023 and 1.1% at March 2024.
The bank said while inflation has fallen, “getting it down to target range is proving difficult globally and here in Australia. It is likely interest rates will stay higher for longer.”
Final thoughts on the Westpac share price
The increased cash returns to shareholders is a bonus and may excite some investors. However, it’s not a good sign that Westpac continues to see arrears rise – at some point this could reach a tipping point. The growing number of loans in arrears for over 90 days is a concern to me.
Management seem confident the economy is on track for a soft landing, though this scenario “is not certain”.
After a strong rally of Westpac shares in the last six months, I’d be cautious about buying today considering profit is actually going backwards.
